Money launderers abusing m-payments networks, US warns

Money launderers abusing m-payments networks, US warns

The rise in mobile banking and payment networks across the world is creating new opportunities for money laundering and terrorist financing, according to a report by the US Department of State.

The proliferation of mobile phones - there are around three billion around the world, compared to less than one billion bank accounts - has proved an invaluable channel for providing the unbanked in Africa, Asia and South America with access to financial services, says the report, but there are already signs that money launderers and those that finance terrorism will abuse these new m-payment systems.

"Responsible jurisdictions must find a balance between the expediency of m-payments, particularly in the developing world, and the need to guard against abuse," says the Bureau of International Narcotics and Law Enforcement Affairs in its 2008 international narcotics control strategy report (INCSR).

The report highlights the threat of "digital value smurfing", a term coined by the Asian Development Bank. In traditional money laundering, "smurfs" deposit or place small amounts of "dirty money" into financial institutions in ways that do not trigger financial transparency reporting requirements.

Now "digital smurfs" are able to bypass regulated banks and financial reporting requirements and exchange dirty money for digital value in the form of mobile payment credits.

Because criminals can now transfer money via their handsets they avoid the risk of physical cash movement and bypass financial transparency reporting requirements when sending laundered funds across a country or around the world, says the report.

In addition, because there is no cash involved in this type of laundering and criminals can destroy their pre-paid phones, there is normally a lack of physical evidence available to the police.

The report warns that money launderers are also able to use the digital value through smartcards, online accounts and Internet payment services.

To make matters worse, law enforcement and intelligence agencies have yet to catch up with the criminals and have not developed the necessary technical expertise on mobile payments.

The report says that the US currently has "few safeguard" against the abuse of m-payments for money laundering. Although mobile payment providers must register with the Financial Crimes Enforcement Network (FinCEN), most businesses do not comply with registration requirements and there is little enforcement of regulations.

The report cites the Philippines as "one of the few countries pro-actively taking steps to monitor and regulate m-payments". Service providers have worked closely with the country's central bank and the financial intelligence unit to comply with anti-money laundering laws and regulations. Carriers are also regulated as money service businesses.

Furthermore, under the Philippines 'know your customer' regulations, a subscriber must register in person with a payment service provider and present a valid photo identification document to either put cash in or take cash out of the system.

There are also limits on the size of the customer's electronic wallet - for example, the maximum a subscriber can transfer at one time is 10,000 pesos (approximately $247), or a maximum of 40,000 pesos (approximately $990) a day and 100,000 pesos (approximately $2475) per month.

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